PART II

-21-

First American Scientific Corp.
Vancouver, BC
Canada

The accompanying notes are an integral part of these financial statements.
F-2

-23-

The accompanying notes are an integral part of these financial statements.
F-3

-24-

The accompanying notes are an integral part of these financial statements.
F-4

-25-

The accompanying notes are an integral part of these financial statements.
F-5

-26-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

First American Scientific Corp. (hereinafter “the Company” or “FASC”) was incorporated in April 1995 under the laws of the State of Nevada primarily for the purpose of manufacturing and operating equipment referred to as the KDS Micronex System. This patented process has the capability of reducing industrial material such as limestone, gypsum, zeolite, wood chips, bio-waste, rubber and ore containing precious metals to a fine talcum-like powder. The process can significantly increase the end value of the host material. The Company maintains an office in West Vancouver, British Columbia, Canada and a demonstration and sales site in Abbotsford, British Columbia, Canada. The Company’s year-end is June 30.

First American Scientific (Canada) Ltd. - wholly owned subsidiary

The Company formed First American Scientific (Canada) Ltd., formerly named First American Power Corp., and 521345 BC Ltd., a 100 % wholly owned subsidiary, in 1998 in order to provide research and development services eligible for Canadian research and development credits exclusively to FASC and, when feasible, to operate a profitable production facility in Canada.

First American Scientific Corp ( Malaysia ) Bhd. Sdn, - joint venture

On July 8, 2004, the Company entered into a joint venture agreement with two Malaysian companies to sell and market the KDS Micronex Machine. Under the terms of the agreement, the joint venture ordered one KDS Micronex Machine from FASC and set up a demonstration plant in Malaysia for the KDS System utilizing the KDS Micronex Machine acquired from the Company. In September of 2005, the Company sold a license agreement to FASC Bhd. Sd. for 50 % of the outstanding shares of common stock of the joint venture.

The Company accounts for this investment in accordance with APB 18 at cost. FASC does not participate in or influence operating or financial decisions of the joint venture. The investment is valued at the agreed upon purchase price of the 21 year license for the KDS technology.

Alternative Green Energy Systems, Inc. - Licensee

The Company formed Alternative Green Energy Systems, Inc. (hereinafter “AGES”) in 2002 for the purpose of using FASC’s licensed technology and patents to manufacture, sell, operate and use KDS machines in combination with available expertise in wood dust burning technology. In 2002 and 2003, the Company reported financial information from AGES on a consolidated basis due to its control of AGES.

In September 2005, AGES issued a cash call to all its shareholders. In October 2005, AGES received $700,000 Cdn in new funding from its other shareholders. FASC did not participate in the September cash call and its shareholdings in AGES were diluted to 12 %. In June 2007, Hydro Quebec exercised its put

F-6

-27-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

option and forced the sale of 100% AGES to a third party for one dollar plus the assumption of AGES debts. Being unwilling to assume AGES debts which exceeded $ 1,200,000 Cdn, FASC’s shareholdings were purged, and a new group has now taken over 100 % control of AGES.

The debt that was due to FASC by AGES has not been paid and FASC is in a position to cancel the license. At June 30, 2007, FASC wrote off the balance sheet owing from AGES. (See Note 9)

JP Steelplantech Company (Japan) - Licensee

On September 26, 2005, the Company signed an exclusive license agreement for manufacturing and marketing the KDS System in Japan with JP Steelplantech Company of Yokohama, Japan. As part of the agreement JP Steel has paid an up front licensing fee and purchased and installed a fully operational KDS at its facility in Yokohama to be used for sales demonstrations and research purposes. JP Steel must also pay a royalty to FASC for each machine manufactured and sold in Japan.

JNK Heaters Co. Ltd ( Korea ) - Licensee

On December 14, 2005, the Company signed an exclusive license agreement for the marketing of the KDS System in Korea with JNK Heaters Co. Ltd of Seoul, Korea. As part of the agreement JNK has paid an up front deposit for a licensing fee and machine purchase, and finalized the purchase and installation of a fully operational KDS at its facility in Seoul within one year. The License allows JNK to earn the right to manufacture machines in Korea after meeting certain contractual conditions. These conditions have yet to be met. JNK would also pay a royalty for each machine manufactured and sold in Korea.

Waste and Resources Action Programme - Research project - United Kingdom

In September 2004, we signed an agreement wherein WRAP has agreed to provide funding to develop “value enhanced end-products” from the output of the KDS machine. WRAP has agreed to provide $1,000,000 USD for the purchase and installation of one complete KDS system to be located at a local pulp & paper mill in England. The fund will also pay for market research, scientific research, re-design and adaptation costs for the equipment and supplementary systems for industry-specific applications over an 18 month period. The goals of the project are to demonstrate the KDS technology in a working environment, optimize ancillary equipment to improve its efficiency, and identify markets for recycled end products. In Dec 2004, a KDS Model S-4 was shipped to Aylesford Newsprint in London, England for trial runs and evaluation. The initial testing phase is now complete and the results published in the WRAP report released in late April 2007 indicate the process is scientifically sound, is commercially viable in several areas, but needs more development work prior to implementation.

F-7

-28-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of FASC is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Accounting Method
The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. At June 30, 2007, accounts receivable were $19,053 with no allowance for doubtful accounts required at the date of preparing these statements.

The Company’s policy is to accrue interest on trade receivables 30 days after invoice date. A receivable is considered past due if payments have not been received by the Company for 90 days. Any amounts collected at a later date will be included in income.

During the year ended June 30, 2007, the Company had $323,560 in revenue from the sale of two machines and related services.

Advertising Expenses
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. The Company's advertising expenses were $25,628 and $ 5,035 for the years ended June 30, 2007 and 2006, respectively.

Cash and Cash Equivalents
For purposes of its statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.

Compensated Absences
Employees of the Company are entitled, by Canadian law, for paid time off equal to four percent of their wages. At June 30, 2007, the accrued amount is approximately $20,000.

F-8

-29-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (hereinafter "SFAS No. 130"). SFAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. SFAS No. 130 is effective for periods beginning after December 15, 1997. The Company adopted this accounting standard and its adoption is reflected in the accompanying financial statements.

Concentration of Risk
The Company maintains its Canadian cash accounts in primarily one commercial bank in Vancouver, British Columbia, Canada. Its U.S. dollars are maintained in a bank account in Vancouver, British Columbia, Canada.

Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes.

At June 30, 2007 and 2006, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.

Fair Value of Financial Instruments
The carrying amounts for cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair value.

F-9

-30-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

Foreign Currency Translation
Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the period-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange differences arising on translation are disclosed as a separate component of shareholders’ equity. Realized gains and losses from foreign currency transactions are reflected in the Company’s results of operations.

Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of operations.

As shown in the accompanying financial statements, the Company has incurred an accumulated deficit of $13,217,712 through June 30, 2007 and has limited cash resources of $58,321 The Company recorded decreased sales during the year ended June 30, 2007, and generated a net loss of $1,086,967. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans to substantially increase sales through current channels and develop new sales opportunities. Management has also established plans designed to increase the sales of the Company’s products by continued research and development and combining technology with its licensees in Canada, Japan, and Korea through its joint venture in Malayisa. Management intends to seek new capital from new equity securities offerings that will, if successful, provide funds needed to increase liquidity, fund internal growth and fully implement its business plan. However, there is no assurance that the Company will raise the required capital. If the Company is unable to raise the required capital, then it will assess its future business viability.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Impairment of Long-Lived Assets
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, AAccounting for the Impairment or Disposal of Long-Lived Assets” (hereinafter “SFAS No. 144"). “SFAS No. 144 replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001.

F-10

-31-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

In complying with this standard, the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the present value of future cash flows estimated to be generated by its assets to their respective carrying amounts. As of June 30, 2007 and 2006, no impairments were deemed necessary.

Inventory
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4". This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this statement will have any immediate material impact on the Company.

Inventories are stated at the lower of average cost or net realizable value. The cost of finished goods includes the cost of raw material, direct and indirect labor and other indirect manufacturing costs.

Two machines were sold during the year ended June 30, 2007 and four were sold in 2006.

Net Loss Per Share
In June 1999, the Company adopted Statement of Financial Accounting Standards Statement No. 128, “Earnings Per Share.” Basic earnings (net loss) per share is computed using the weighted average number of common shares outstanding. Diluted net loss per share for FASC is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive.

Prepaid Expenses
At of June 30, 2006 and June 30, 2007 , prepaid expenses consist of a refundable utility deposit.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

FASC consolidates its financial statements with First American Scientific (Canada) Ltd as it is a wholly owned and controlled by FASC.

F-11

-32-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

Historically, FASC has owned 40% of the outstanding shares of AGES, as well ownership of all AGES technology. AGES's license to use the technology was conditional upon it meeting certain conditions. Because, as of June 30, 2003, these conditions had not been met, FASC was deemed to be in a position of control and AGES was treated as a majority owned subsidiary of FASC with its financial statements consolidated with FASC.

During the year ended June 30, 2005, the agreement between FASC and AGES was renegotiated. Under the new agreement, FASC owns 12 % of AGES. As a consequence, FASC has no control over AGES and will in this and future financial statements report its investment in AGES using the equity method. Its investment in AGES has been offset against net losses generated by AGES. See Note 9. As of June 30, 2007, the Company has no shareholdings in AGES.

The Company accounts for its investment in the joint venture with FASC Malaysia in accordance with APB 18 at cost. FASC does not participate in or influence operating or financial decisions of the joint venture. The investment is valued at the agreed upon purchase price of the 21 year license for the KDS technology.

Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (hereinafter “SFAS No. 109"). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset.

At June 30, 2006 and June 30, 2007 the Company had net deferred tax assets of approximately $3,200,000 and $2,8000,000 respectively principally arising from net operating loss carryforwards, at an expected rate of 34%, for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at June 30, 2007. The change in the deferred tax asset valuation allowance from June 30, 2006 to June 30, 2007 was 400,000.

The significant components of the deferred tax asset at June 30, 2007 and June 30, 2006 were as follows:

F -12

-33-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

At June 30, 2007, the Company has net operating loss carryforwards for tax purposes of approximately $9,200,000 which expire in the years 2015 through 2027.

Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115" (hereinafter “SFAS No. 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings cause by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, although earlier adoption is permitted. Management has not determined the effect that adopting this statement would have on the Company’s financial condition for results of operations.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - An amendment of FASB Statements No. 87, 88, 106, and 132(R)." One objective of this standard is to make it easier for investors, employees, retirees and other parties to understand and assess an employer's financial position and its ability to fulfill the obligations under its benefit plans. SFAS No. 158 requires employers to fully recognize in their financial statements the obligations associated with single!employer defined benefit pension plans, retiree healthcare plans, and other postretirement plans. SFAS No. 158 requires an employer to fully recognize in its statement of financial position the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. SFAS No. 158 requires an entity to recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87. This statement requires an entity to disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. Companies are required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures for fiscal years ending after December 15, 2006. Management believes that this statement will not have a significant impact on the Company’s financial statements.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP and does not require any new fair value measurements. SFAS No. 157 is effective for financial

F-13

-34-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier adoption is encouraged. The Company does not expect the adoption of SFAS No. 157 to have a significant effect on its financial position or results of operation.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109", which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material impact on its financial reporting, and the Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its disclosure requirements.

Revenue and Cost Recognition
Revenues from the sale of KDS machines are recognized when there is a sales contract, all terms of the contract have been completed, collectibility is reasonably assured and the products are delivered. Deposits received on undeliverable goods are shown as a current liability.

KDS machine costs include applicable direct material and labor costs and related indirect costs. Changes in job performance, job conditions and estimated profitability may result in revisions to product costs, which are recognized in the period in which the revisions are determined.

Sales Tax Refunds-Goods and Services tax (GST)
The Canadian Government requires Canadian resident companies to collect sales taxes from customers when goods and services are sold in Canada. These taxes collected can be offset by taxes paid (tax credits) for goods and services purchased in Canada. Any sale outside of Canada is not taxed for this purpose. At the end of each quarter, all taxes paid on goods and services purchased are netted against the taxes due on sales of goods and services sold. Because the Company has more tax credits than taxes collected, and as of June 30, 2007, the Company is due a refund of $24,222 compared to $ 7,710 on June 30, 2006.

Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

F-14

-35-

Depreciation expense for the years ended June 30, 2007 and 2006 was $ 21,786 and $19,142 respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired.

The Company determines impairment by comparing the present value of future cashflows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.

NOTE 4 – TECHNOLOGY RIGHTS AND PATENTS

Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (hereinafter “SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (hereinafter “SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. On June 30, 2001, the Company adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 resulted in no change to reported earnings in the years ended June 30, 2007 and June 30, 2006, as the Company does not have recorded assets with indeterminate lives.

F-15

-36-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

Technology Licenses
On June 22, 1995, the Company entered into a license agreement with Spectrasonic Corp. (hereinafter "Spectrasonic"), a related party, for the worldwide license to its unpatented Kinetic Disintegration Equipment (“KDS”) for use in rubber and glass recycling and disposal, for a period of ninety-nine years. The purchase price of this license and one SDM machine was $550,000, with license rights valued at $250,000.

On February 22, 1996, the Company entered into an additional license agreement with Spectrasonic for the worldwide license to its unpatented Ultrasound Equipment for exclusive use in gypsum disintegration, disposal, recycling, remanufacturing or manufacturing of used or new raw materials. The purchase price of this license and one KDS machine for gypsum-related use was $775,000, with the parties agreeing that the technology license was valued at $425,000 and the gypsum KDS machine was valued at $350,000.

On May 17, 1996, the Company executed another agreement with Spectrasonic for the worldwide licenses to equipment (as yet unpatented) developed by Spectrasonic for use in disintegration, disposal, recycling, remanufacturing or manufacturing "any and all kinds of materials" for a period of ninety-nine years. The purchase price of this license was $1,047,000, which the Company paid by issuing to Spectrasonic 5,500,000 shares of First American common stock (with an aggregate deemed value of $802,000) and paying $168,000 in varying installment amounts between September 30, 1996 and January 2, 1997. The Company also recognized $77,000 in forgiveness of debt, which was recorded as additional paid-in capital.

On July 2, 1997, the Company finalized negotiations with Spectrasonic for all patents to be issued or pending, including all data pertaining to the patent process with respect to the Kinetic Disintegration Machine (“KDS Machine”), whose worldwide rights had been previously acquired by the Company. In the negotiations, the Company acquired all manufacturing rights applicable to the KDS Machine technology. The Company has sole right and responsibility for manufacturing the machinery. Consideration to Spectrasonic was 1,000,000 common shares of the Company’s stock at a deemed value of $0.25 per share issued on December 1, 1999.

Technology licenses, patents and manufacturing rights are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the assets, which is fifteen years.

The following is a summary of technology licenses, patents and manufacturing rights and accumulated amortization:

F -16

-37-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

Amortization expense for the year ended June 30, 2007 and 2006 was $145,182 and $145,209 respectively.

The Company has determined that the carrying value of its technology rights and patents is fairly stated, based upon the estimated present value of cash flows and the Company’s estimated ability to sell two machines each year through the year ended June 30, 2007. The following is a summary of the costs of patents approved for the years ended June 30, 2007 and June 30, 2006:

NOTE 5 – COMMON STOCK  

Stock Based Compensation  

During the year ended June 30, 2007, the Company issued 6,300,000 shares of stock as follows: 1,875,000 shares of common stock as payment for management salaries with a fair market value of $ 75,000; 471,000 shares of common stock in payment of rent with a fair market value of $ 16,500, 1,354,000 shares of common stock in payment of accounting with a fair market value of $ 26,112, 500,000 shares of common stock in payment of legal fees with a fair market value of $ 16,000, 750,000 shares of common stock in payment of advertising with a fair market value of $ 25,000, 1,350,000 shares of common stock in payment of consulting fees with a fair market value of $ 25,250,

During the year ended June 30, 2006, the Company issued 8,400,000 shares of stock as follows: 835,000 shares of common stock as payment for services with a fair market value of $31,134, 550,000 shares of common stock in payment of rent with a fair market value of $ 22,000, 740,000 shares of common stock as payment for expenses with a fair market value $ 22,410, 650,000 shares of common stock as payment for a loan with a fair market value of $ 22,400, and 5,625,000 shares of common stock as compensation with a fair market value of $ 225,000.

F-17

-38-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2007

NOTE 6 – STOCK OPTIONS

The Company’s board of directors approved the First American Scientific Corp. 2005 Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 10,000,000 shares of common stock options at a maximum share price of $0.04 to persons employed or associated with the Company. This plan was not approved by the Company’s security holders.

The Company’s board of directors approved the First American Scientific Corp. 2006 Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 5,000,000 shares of common stock options at a maximum share price of $0.04 to persons employed or associated with the Company. This plan was not approved by the Company’s security holders.

During the year ended June 30, 2005, the Company granted 11,740,000 options of which all were immediately exercised.

During the year ended June 30, 2006, the Company granted 8,016,000 options of which 5,925,000 have not been exercised.

During the year ended June 30, 2007, the Company granted 6,300,000 options of which all have been exercised.

The fair value of each unexercised option granted during the year ended June 30, 2006 was estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk-free interest of 5%, volatility of 71%, expected life of 1 to 5 years, and no expected dividends. The additional value assigned to these options granted during the year ended June 30, 2006 is $33,000.

There were no options granted as at June 30, 2007 that were not exercised.

The Company’s board of directors approved the First American Scientific Corp. 2004 and 2004A Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 20,000,000 shares of common stock options at a maximum share price of $0.05 to persons employed or associated with the Company. This plan was not approved by the Company’s security holders.

There is no express termination date for the options, authorized by the Company’s plans, although the Company’s board may vote to terminate any existing plan. The exercise price of the options will be determined at the date of grant.

The following is a summary of the Company's open stock option plans:

F-18

-39-

F -19

-40-